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Ross Stores Q2 sales jump; gives weak outlook on higher supply chain and COVID costs

Ross Stores reported a strong quarter that beat expectations but warned of possible risks from escalating supply chain congestion and the COVID-19 delta variant.

The off-price retailer reported that its earnings per share grew 22% to $1.39 on net income of $494 million for the quarter ended July 31. This compares to $1.14 per share on net earnings of $413 million for the year-ago period.

Sales rose 21% to $4.8 billion. Comparable store sales increased15%.

“Sales benefited from customers’ positive response to our broad assortment of great bargains,” stated Barbara Rentler, CEO. “In addition, our results were bolstered by a number of external factors, including ongoing government stimulus, increasing vaccination rates, and diminishing COVID restrictions.”

In March, Ross said it planned to open 60 new stores in fiscal 2021. The openings include 40 Ross Dress for Less and 20 dd’s Discounts locations.

Looking ahead, Rentler cited potential risks the chain may face from the spread of COVID variants and worsening industry-wide supply chain congestion. As a result, it forecast third-quarter same-store sales to be up 5% to 7% with earnings per share in the range of $0.61 to $0.69.

“This guidance reflects our expectation for escalating freight and supply chain costs, and ongoing COVID-related operating expenses,” Rentler said.

The retailer said it remains optimistic about its prospects for continued growth in both sales and profitability over the longer term, especially given consumers’ increasing focus on value and convenience.

“ Moreover, the significant number of retail closures and bankruptcies in recent years further enhances our ability to gain additional market share in the future,” Rentler said.

Ross’ operating margin versus 2019 improved to 14.1% with leverage from the sales gains partially offset by the anticipated expense pressures from higher freight, wage, and COVID-related costs.

During the second quarter, Ross repurchased 1.4 million shares of common stock for an aggregate price of $176 million. As previously announced, the company expects to buy back a total of $650 million in common stock during fiscal 2021.”

Ross Stores, headquartered in Dublin, Calif., had fiscal 2020 revenues of $12.5 billion. The company operates 1,611 Ross Dress for Less stores locations in 40 states and 285 dd’s Discounts stores in 21 states.

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